Teach your children well on money

We often say that kindergarten teaches you everything you need to know about life except how to raise kids and manage money.

And when it comes to investing, the most important tool is education. Financial literacy programs in our school systems are not a part of the core curriculum, so in order for our children to have successful financial futures, money lessons must be addressed starting at a young age, then reinforced and expanded as they get older.

Many school districts have the best of intentions in adding some form of financial curriculum to the required course of study for various grades. The problem is that there are no statewide standards to assure a uniform result across districts. Therefore, this is a challenge that is going to require the combined efforts of both schools and parents if we expect to see an improvement. So here are some words of wisdom you can offer your kids to give them a jump start.

Remember: Be cautious with your credit card

By nature, most kids tend to be competitive. You need to impress upon them at an early age the fact that there is an entire industry geared at getting them in debt and keeping them there. If kids understand that they are in a battle, they will fight back.

Credit card companies and the banks that issue them make a lot of money by convincing borrowers that it is OK to just make the minimum payment on their card balances each month. Kids need to be told early and often (starting long before they will qualify for a card) that this is not OK. By starting this conversation early, they will learn that if they are not paying off their card balance in full every month that they have a problem. The only question is, how big of a problem. Plus, many children have parents who co-sign their credit cards, and this puts both at risk.

Buy a house you can afford, and not what lenders tell you

Experience has taught us parents that another potential debt trap is in the form of spending too much for housing. Just because a lender tells you or your adult children that they can "afford" to devote 28 percent of monthly take-home pay to that house purchase doesn't mean that they should. If they are planning on funding long-term goals, such as retirement, or perhaps college for their own kids, they should be especially careful with this one. Also stress the importance of buying an affordable home with no more than a 15-year mortgage.

Follow the Rule of 72 to understand your earnings

The concept of the Rule of 72 is an important one as it illustrates the power of compound interest. Divide your expected rate of return on investments into the number 72. The result will give you (roughly) the number of years it will take for an investment to double. A simple example would be a six percent return divided into the number 72 tells you that your investment will double in 12 years.

This is especially important for kids to understand because they will probably have 10 to 15 different jobs during their working life. Understanding the Rule of 72 should minimize the temptation to cash in their 401(k) each time a job change is made. Leaving those 401(k) funds alone to compound until retirement will probably be the difference between a successful financial future and dependence on the government.

Live below your means and save the most you can

The single most important lesson to teach your kids is that they should live below their means, not within their means. Stress the 50/30/20 rule of budgeting: when they get their first job, they should devote 50 percent of their take home pay to needs, 30 percent to wants and save the remaining 20 percent.

If they get into that habit early and continue with it, they will be virtually assured of long-term financial success. It's a life investment that will pay dividends for the rest of their lives. ⬛

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Teach your children well on money

We often say that kindergarten teaches you everything you need to know about life except how to raise kids and manage money.